In this report, I analyze the competitive effects of recent proposals to reserve a small portion of the upcoming 700 MHz band auction for wholesale, open-access use.[i] Using this license, a wholesale open-access licensee would build out the wireless network, own and operate the cell sites, towers, and radio equipment, and provide transport to the Internet backbone. For the purposes of this report, “open access” means that there would be “no locking and no blocking” by the network operator. That is, there would be no prohibitions against devices that may be connected to the network so long as the devices are compatible with, and do not harm, the network (i.e., no “locking”), and there would be no restrictions against content, applications, or services that may be accessed over the network (i.e., no “blocking”). Verizon’s decision to reject Apple’s iPhone is a recent example of locking, and its prohibitions against video streaming, peer-to-peer file sharing, and other applications are examples of blocking.[ii]
Several of the open-access proposals also propose a “no-retail” rule, which means that the licensee will not offer any retail services to end users but will provide basic transport capacity to unaffiliated retail service providers on a non-discriminatory basis.[iii] These retail service providers would then supply services, such as mobile Internet access and device connectivity, to end users.[iv] The no-retail rule effectively separates the operation of the transport network from the provision of retail services, ensuring that the operator of the transport network will not compete directly in the provision of retail services. When the operator of the transport network is a pure wholesale provider that is not affiliated in any way with a retail service provider, the disassociation of transport from retail services will promote competition and benefit consumers. Instead of one integrated and closed retail provider, under open access a number of competing retail providers lease capacity from the open wholesale network. If the operator of the transport network were affiliated with a retail provider, however, the separation between network operation and the provision of retail service would be incomplete, the open-access policy would likely be doomed to fail, and the competitive benefits of the policy would not then be realized.
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[i] See, e.g., Comments of the Ad Hoc Public Interest Spectrum Coalition, WT Dkt No. 06-150 (FCC May 23, 2007), p. iii; Comments of Google Inc., WT Dkt No. 06-150 (FCC May 23, 2007), p. 8; Letter from Amol Sarva et al., Wireless Founders Coalition for Innovation to the Honorable Kevin Martin, Chairman, FCC, WT Dkt No. 06-150, undated; and Frontline Wireless, Initial Comments, WT Dkt No. 06-150 (FCC May 23, 2007), p. 3. The Ad Hoc Public Interest Spectrum Coalition (PISC) consists of Champaign-Urbana Community Wireless Network, Consumer Federation of America, Consumers Union, Educause, Free Press, Media Access Project, New America Foundation, Public Knowledge, National Hispanic Media Coalition, and U.S. Public Interest Research Group.
[ii] For greater detail on locking and blocking, and for other examples, see Timothy Wu, “Wireless Net Neutrality: Cellular Carterfone and Consumer Choice in Mobile Broadband,” New America Foundation, Wireless Future Program Working Paper #17 (Feb. 2007).
[iii] See Frontline Wireless, Initial Comments, WT Dkt No. 06-150 (FCC May 23, 2007); see also “An Engineering Assessment of Select Technical Issues Raised in the 700 MHz Proceeding,” Columbia Telecommunications Corp., May 2007, appended to Comments of the Ad Hoc Public Interest Spectrum Coalition, WT Dkt No. 06-150 (FCC May 23, 2007).
[iv] See Frontline Wireless, Initial Comments, WT Dkt No. 06-150 (FCC May 23, 2007), p. 17.